Chapter 12

Jurisdiction of the courts

Should the Family Court have jurisdiction?

(1)The Family Court should have jurisdiction to make any orders and give any directions under new trusts legislation where this is necessary to give effect to any determination of other proceedings that are properly before the Family Court.(2)The Family Court’s jurisdiction should not be subject to the upper threshold of [$500,000] that has been set in P50 for proceeding in the District Court. Instead, regardless of the value of the claim, the Family Court should have jurisdiction to exercise powers under new trusts legislation where the proceedings (such as proceedings under the Family Protection Act or Property (Relationships) Act) in which such orders will be made are within its jurisdiction.

Please give us your views on this proposal.

Current law

12.41Family Courts were established as divisions of the District Court by the Family Courts Act 1980. Section 11 of that Act gives the Family Court jurisdiction for a wide variety of matters affecting couples, families and children.

12.42The Family Court has concurrent jurisdiction with the High Court under the Family Protection Act 1955. It also has jurisdiction under the Property (Relationships) Act 1976. As a result, the Family Court is sometimes required to consider aspects of trust law where they arise in proceedings properly within its jurisdiction.

12.43However, the Family Court does not have the substantive equitable jurisdiction of the District Court. Section 11(1) of the Family Courts Act 1980 confers jurisdiction on the Family Court. Section 16 of that Act then applies the District Courts Act with any necessary modifications, to the Family Court and Family Court judges. A line of High Court cases has confirmed that these provisions do not confer the District Court’s substantive equitable jurisdiction under section 34 onto the Family Court.301 In the most recent decision the High Court stated that “further words are required to confer on the Family Court the civil jurisdiction of the District Court. Those further words are absent”.302 The Family Court has, under section 16 of the Family Courts Act, the ancillary jurisdiction of a District Court under section 41 of the District Courts Act so is able to give equitable relief where a matter is within its jurisdiction, but does not have jurisdiction to hear a cause of action founded in equity.303 The Family Court also has no jurisdiction to make orders under the Trustee Act, although it may make ancillary orders when this is necessary in any relationship property matter varying the terms of any trust or settlement, other than a trust under a will or other testamentary disposition.304

Issue

12.44The main issue is whether the Family Court (which is a division of the District Court) should also have jurisdiction to make orders and give directions under new trusts legislation.

12.45Some relationship property matters and also other family proceedings that come before the Family Court involve components of trust law. In some situations this means that the parties need to make subsequent applications to the High Court to address the related trust matters. Given the proposals we have made in respect of the District Court, the question is whether there is any reason why the Family Court should not have the same powers under new trusts legislation to better deal with matters properly before it and reduce the need for subsequent proceedings in the High Court.

Options for reform

12.46The options considered were:

(a)retaining the status quo – an application should be made to the High Court (or the District Court) for any order available under new trusts legislation; or(b)giving the Family Court jurisdiction to make any orders and give any directions under new trusts legislation as may be necessary to give effect to any determination of Family Court proceedings that are properly before those courts.

12.47The Chief Justice proposed, in her submission to the Ministry of Justice Review of the Family Court that the High Court’s previous concurrent jurisdiction in relationship property proceedings should be reinstated. Under this option relationship property proceedings could be commenced in either court and both the High Court and the Family Court would have powers to transfer proceedings as necessary. An applicant would then file their relationship property claim in the High Court, rather than the Family Court, where they anticipated orders would be needed under new trusts legislation.

12.48In addition, one of the recommendations of the Reference GroupReport to the Ministry of Justice on Family Court Review released earlier this year is that the concurrent jurisdiction of the High Court which applied pre-2002 should be reintroduced in relationship property proceedings. The Reference Group’s report also suggested that it would be beneficial to extend the jurisdiction of the Family Court to deal with trust issues which arise in relationship property cases so there is no necessity for separate proceedings in the High Court where overlapping trust issues arise. To that end the Reference Group recommended that the Family Court should be given greater powers to deal with trust issues in relationship property cases.305 We have also considered these options.

Discussion

12.49The Fifth Issues Paper asked for feedback on the two options for reform. It did not include the proposal of reinstating the High Court’s previous concurrent jurisdiction under the relationship property regime.

12.50Submitters were evenly divided with half favouring preserving the status quo and the other half supporting the option of giving the Family Court some jurisdiction under new legislation.

Option (a) – Maintain the status quo

12.51Submitters who did not favour expanding jurisdiction of the Family Court in respect of trusts essentially argued that the High Court should retain exclusive jurisdiction under new legislation. Their main point is that trust law should be approached as a specialism involving issues of both legal and factual complexity and therefore belonged in the High Court.

12.52As already noted, the submission made by the Chief Justice to the Ministry of Justice Review of the Family Court, which we were invited to consider, opposed the trust jurisdiction of the High Court being devolved to the Family Court in relationship property claims. The Chief Justice commented that the High Court has inherent jurisdiction as well as its specific statutory powers under the Trustee Act and can deal comprehensively with all issues relating to trusts.

12.53The Chief Justice’s submission proposed that:

the simplest solution to the jurisdictional issue raised in both the Review of the Family Court and in our law of trusts review, is to reinstate concurrent jurisdiction in relationship property proceedings. The High Court would have power on application or own motion, to transfer the proceedings to the Family Court as part of the proposal.

12.54One other submitter went further and argued that the High Court, and not the Family Court, should have originating jurisdiction over any matters concerning personal or relationship property where trusts are also involved.

Option (b) − Family Court jurisdiction

12.55Approximately half of submitters thought the Family Court should have jurisdiction where trusts related to issues arising in the course of proceedings otherwise within the court’s jurisdiction. Submitters suggested that quite commonly relationship property proceedings raise incidental questions relating to family trusts and that it would therefore be sensible for the court to have the tools to deal with such matters as they arise. Most submitted that the Family Court should be able to exercise any powers under a new Trusts Act, irrespective of the value of the claim, if the court considered this necessary to resolve any proceedings properly brought before the court under legislation listed in section 16A of the Family Courts Act.

12.56The NZLS’s submission did not favour giving the Family Court general jurisdiction in relation to trusts but thought there might be a case for the Family Court being able to exercise certain powers where these are ancillary to its core jurisdiction. To avoid the procedural inefficiencies that can arise where relationship property disputes are related to trust disputes the NZLS has suggested that new legislation should provide:

a caveat procedure under which an appointer can be prevented from exercising his or her powers to appoint or remove trustees where parties separate, in the exercise of the powers approved by the Family Court;

a limited jurisdiction for the Family Court to remove and appoint trustees where parties to a relationship separate and there is a serious deadlock or hostility between some or all of the trustees that results or may result in the trust or the beneficiaries being at risk; and

a limited jurisdiction for the Family Court to remove and appoint an appointer or suspend or supervise an appointer's power to appoint or remove trustees in the same circumstances.

Assessment

12.57If the District Court has the jurisdiction under new trusts legislation that we have already proposed, then it is difficult to argue that the Family Court, which is a division of District Court, should not also have those powers. We propose that the Family Court should only be able to exercise the powers and make orders under new trusts legislation as an ancillary jurisdiction to provide a remedy where a matter is within its jurisdiction. The Family Court already has the ancillary jurisdiction of the District Court under section 41 of the District Courts Act to give equitable relief where a matter is within its jurisdiction, but not jurisdiction to hear a cause of action founded in equity.

12.58In proceedings under the Property (Relationships) Act the Family Court may already make some ancillary orders under section 33(3) in respect of trusts to give effect to decisions under that Act. The Court of Appeal has said that “s 33(3) enables the court to adopt one or more of a number of means of dividing the property so as to give effect to its conclusion as to entitlement”.306 Section 33(3)(m) empowers the Family Court to vary the terms of an inter vivos trust, but not a testamentary trust.

12.59Relationship property settled on a trust by one of the partners to the relationship will be beyond the Court’s jurisdiction, unless the disposition to the trust is caught by section 44 and can be set aside, or one or both of the partners has a vested or contingent interest in the trust.307 In such cases, the Court can make orders dealing with the trust assets, including orders varying the terms of the trust under 33(3)(m).308 For example, the Court may vary the terms of the trust to confer on a spouse or partner a vested interest or remove a contingency, or it could vary the final distribution date to the date of judgment.309

12.60These ancillary powers go some way, but we consider that it would be desirable for the Court to also be able to make as an ancillary order, other orders or directions under new trusts legislation. Where the partners to a relationship have separated and one or both of them has an interest in a trust, or a claim is to be brought by one partner under section 44, the Court should have jurisdiction to make any orders necessary under the new Act. For example, orders removing or appointing trustees, suspending distributions from the trust, or requiring trustees to provide information might be appropriate to manage a serious deadlock or hostility between trustees, or to preserve the assets of the trust until the property claims of the parties to the relationship can be resolved. The Court should be able to make orders at any stage of proceedings, or in situations where proceedings under the new Act are pending.

12.61Where the spouse or partner’s interest in the trust is merely a discretionary interest, the Court could not ultimately make any substantive orders in relation to the trust assets, unless it first determined that there have been dispositions of property to the trust to which section 44 applies. This is because a partner with a discretionary interest does not have any beneficial ownership in the assets in trust but only a hope or expectation. However, we consider that the Court should be able to make interim orders until determination about the nature of any interest in the trust or the application of section 44 is resolved.

12.62We consider that the Family Court should be able to exercise any powers and make any orders under new trusts legislation to provide a remedy where a matter is within its jurisdiction. There are significant difficulties with trying to identify the correct subset of powers that the Family Court could need to effectively address all possible circumstance that may arise in cases before it. The suggestions put forward by the NZLS are obvious ones, but are not necessarily sufficient to address the full range of circumstances that may arise. If the Court is only able to access a limited list of powers then aspects of a case may raise issues the Court has no jurisdiction to address. In such cases further proceedings would still need to be filed in the High Court and an application for transfer made.

The option of reinstating the High Court’s concurrent jurisdiction

12.63At present the Family Court is the primary court of originating jurisdiction for all proceedings under the Property (Relationships) Act.310 That has been the position since 2001 when the High Court’s concurrent jurisdiction under that Act was removed.

12.64From the perspective of the Commission’s review of trust law, reinstating the High Court’s concurrent jurisdiction in respect of relationship property, as has recently been proposed, goes further than is necessary to address the problems that arise in cases at the interface between relationship property and trust law. Such a proposal has implications for all proceedings brought under that Act and not just those raising trust law issues. We consider that this type of proposal may well have merit but it falls beyond the scope of our review of trust law.

12.65To deal with the specific issues that arise in cases at the interface between relationship property and trust law, our preferred approach is for the Family Court to have jurisdiction under new trusts legislation to make any orders and give any directions available under that legislation where this is necessary to give effect to any determination of relationship property proceedings or any other proceedings that are properly before the Family Court. As already noted, the Reference GroupReport to the Ministry of Justice on Family Court Review also recommended extending the jurisdiction of the Family Court to deal with trust issues which arise in relationship property cases.

12.66In August 2012 the Minister of Justice announced a package of reforms to the Family Court resulting from the recent Review of the Family Court. One of the reforms proposed is to lower the current threshold and make it easier to transfer relationship property cases from the Family Court to the High Court. The proposal is that the current requirement for “complexity” would be removed so a case must be transferred from the Family Court where it would be more appropriately dealt with in the High Court.

12.67This is likely to mean that relationship property cases with trust issues can more readily be consolidated with other proceedings in the High Court. However, it does not necessarily reduce the need for parties to file two sets of proceedings and the additional costs associated with that. For some cases also, notwithstanding some trust issues, the Family Court is still the most appropriate forum. While we welcome the proposed change, we consider it is still necessary to extend the Family Court’s jurisdiction to deal with trust issues in the way we have proposed here.

304Under s 33(3)(m) of the Property (Relationships) Act 1976 the Family Court may make an ancillary order varying the terms of any trust or settlement, other than a trust under a will or other testamentary disposition.

305Reference GroupReport to the Ministry of Justice on Family Court Review (27 April 2012) at 50.

307Substantive orders cannot be made in respect of trust assets, unless s 44 applies, if a spouse’s or partner’s interest in the trust is merely a discretionary interest because the spouse or partner has no beneficial ownership in the assets in trust. He or she merely has a hope or expectation until the trustees exercise their discretion in the beneficiary’s favour: See Nation v Nation [2005] 3 NZLR 46; (2004) 23 FRNZ 783 (CA) and the discussion in Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Brookers) at [RP33.12].